Lotte Tour Development's Jeju Casino Complex Resort 'Business Feasibility Stands Out'

Attracting Customers through Shopping, Leisure, Entertainment, and Food & Beverage

The domestic tourism industry, which had been depressed due to the spread of the novel coronavirus infection (COVID-19), is recently showing signs of recovery. With restrictions on international travel, people who cannot travel abroad are visiting domestic tourist destinations. Although it has not yet recovered to pre-COVID-19 levels, this is being seen as a signal that the worst period has passed. As the number of newlyweds going on honeymoons to Jeju Island and Namhae increases, some resorts and hotels have become so highly booked that it is difficult to make reservations even on weekdays. Expectations for improved performance of listed resort-related companies, which had poor results in the first quarter, are also growing. Asia Economy reviews the potential for performance improvement and financial status of Ananti, Yongpyong Resort, and Lotte Tour Development, which is preparing to open a complex resort in Jeju Island.

[Asia Economy Reporter Park Hyung-su] Lotte Tour Development has been struggling due to restrictions on overseas travel following the COVID-19 outbreak, but it expects its performance to improve when it opens the largest casino complex resort in Korea in the second half of this year.

The main attraction is Jeju Dream Tower, located in Nohyeong-dong, Jeju City, just 10 minutes from Jeju International Airport, with a total area of 303,737㎡, consisting of 6 underground floors and 38 above-ground floors. Jeju Dream Tower is a casino complex resort equipped with the 1,600-room Grand Hyatt Hotel, a foreigner-only casino, fitness center, banquet facilities, spa, and swimming pool.

All revenue generated from Jeju Dream Tower, which will become a landmark of Jeju Island, will be recognized by Lotte Tour Development. Lotte Tour Development has entrusted hotel operations to the Grand Hyatt Group and agreed to pay a management fee. All hotel rooms are located at least 62 meters above ground, offering views of Hallasan Mountain or the sea. Since all rooms are operated as suites, the average daily rate (ADR) of sold rooms is expected to be relatively high. Lotte Tour Development expects hotel revenue to exceed 100 billion KRW if the hotel room occupancy rate reaches about 75% next year. Some of the rooms will be provided to VIP customers using the casino.

Lotte Tour Development amended its articles of incorporation in 2014 to add casino business as a corporate purpose in order to operate a foreigner-only casino at Dream Tower. In August 2018, it acquired the 'Paradise Jeju Lotte Casino,' which Paradise Group had been operating at Jeju Lotte Hotel, for 14.9 billion KRW and changed the name to 'LT Casino.' It also invested an additional 35 billion KRW to improve LT Casino's financial structure.

The company is also undergoing the application process for casino relocation and expansion. It is currently preparing the casino industry impact assessment report, which must be submitted at least 60 days before the relocation and expansion application. From an economic perspective, including job creation effects and increased tax revenue for Jeju, the casino relocation approval is expected to proceed smoothly. Lotte Tour Development anticipates that opening Jeju Dream Tower will create about 3,000 jobs.

Jeju Island is the closest overseas travel destination from major cities in northeastern China and Shanghai, and Chinese tourists can visit without a visa. This is a favorable factor for attracting casino customers once the COVID-19 situation subsides.

Choi Jae-ho, a researcher at DS Investment & Securities, said, "We expect Lotte Tour Development's sales to be higher than those of competitor Jeju Shinhwa World, which recorded sales of 387.2 billion KRW in the first half of 2018 when it opened," adding, "As an urban casino complex resort rather than a simple casino, it will maximize customer attraction effects with various entertainment options such as K-fashion shopping malls, restaurants, outdoor swimming pools, and observatories, as well as food and beverage (F&B) services."

Lotte Tour Development is investing 1.6 trillion KRW in the complex resort project. Through this, it expects to generate a total EBITDA of 934.7 billion KRW by 2024. It appears to have sufficient capacity to cover interest expenses and financial fees related to borrowings. Lotte Tour Development's debt ratio increased from 88.1% at the end of last year to 124.8%. Total borrowings rose from 61.4 billion KRW to 168.8 billion KRW.

In the first quarter, Lotte Tour Development recorded sales of 12.9 billion KRW and an operating loss of 7.6 billion KRW. Compared to the same period last year, sales decreased by 27.9%, and the operating loss widened.